Weighing the pros and cons of a consumer proposal comes down to a trade: you can usually settle unsecured debts for a fraction of what you owe and keep your home, car, and savings, but your credit takes a lasting hit, several categories of debt survive the process, any co-signers remain fully on the hook, and missing three payments wipes the whole arrangement out. For many insolvent Canadians it is the best option available. For others, the exclusions and credit consequences make it the wrong tool.
A consumer proposal is a legally binding settlement filed under Division II of the Bankruptcy and Insolvency Act (BIA) and administered by a Licensed Insolvency Trustee (LIT). Once accepted and court-approved, it binds every unsecured creditor, even those who voted against it.1Office of the Superintendent of Bankruptcy. You are Owed Money — Consumer Proposals That framing matters because the pros and cons below all flow from what the BIA does and does not do.
The Benefits
You Pay Back a Fraction of What You Owe
Creditors evaluate your offer against what they would likely recover if you filed for bankruptcy, and most prefer a partial payment over the uncertainty of liquidation. Settlements commonly land between 25% and 50% of the original unsecured balance, though the exact figure depends on your income, assets, and total debt load.
Interest Stops the Day You File
The moment the proposal is filed, interest stops accruing. If you have been carrying credit card balances at 20% to 30% annual interest, that alone can save thousands of dollars over the life of the agreement. Every dollar you pay goes toward the negotiated balance rather than disappearing into compounding charges.2Canadian Association of Insolvency and Restructuring Professionals. Consumer Proposals: A Bankruptcy Alternative for Individuals
You Keep Your Assets
Unlike bankruptcy, where non-exempt assets can be seized and sold for creditors, a consumer proposal generally lets you keep everything you own. Your home equity, your vehicle, your RRSPs, and your savings stay in your hands as long as you continue making payments on any secured loans attached to those assets.3Office of the Superintendent of Bankruptcy. You Owe Money — Consumer Proposals For homeowners who have built equity over years, this often tips the decision away from bankruptcy on its own.
Your Payment Is Fixed
Your monthly payment is locked in when the proposal is accepted and does not change for the life of the agreement. Get a raise, start a side business, or receive an inheritance, and your payment stays the same. In bankruptcy, by contrast, surplus income rules mean that earning above a government-set threshold increases what you owe each month. A consumer proposal removes that uncertainty, so any improvement in your finances benefits you rather than your creditors.
The maximum repayment period is 60 months, but there is no penalty for paying off the balance early, and finishing sooner can shorten the time the notation stays on your credit report.3Office of the Superintendent of Bankruptcy. You Owe Money — Consumer Proposals
Creditors Have to Back Off
Filing triggers a stay of proceedings under Section 69.2 of the BIA. Once the stay takes effect, no unsecured creditor can pursue any legal remedy against you or your property. Collection calls stop, pending lawsuits are frozen, and active wage garnishments must cease.4Department of Justice Canada. Bankruptcy and Insolvency Act – Section 69.2 The protection remains in place until the proposal is completed, withdrawn, refused, or annulled. For people drowning in collection calls, this is often the most immediate relief.
No Separate Bill for Your Trustee
You are never billed directly for your LIT’s services. The trustee’s fees come out of the proposal payments you are already making, not on top of them. The total you agreed to pay in the proposal is the total you pay.
The Drawbacks
Your Credit Takes a Lasting Hit
Every debt included in the proposal is assigned an R7 rating on your credit report, signalling to future lenders that you are repaying under a formal arrangement. That is better than the R9 attached to bankruptcy, but it still limits your borrowing. Expect higher interest rates on any new credit you qualify for, and larger down payment requirements on mortgages and vehicle financing during this period.
The R7 notation stays on your file for three years after you complete all payments, or six years from the date you filed, whichever comes first.5Financial Consumer Agency of Canada. How Long Information Stays on Your Credit Report
Some Debts Survive the Proposal
Not everything gets wiped out. Section 178 of the BIA lists categories of debt that survive both consumer proposals and bankruptcy. You remain fully responsible for these obligations even after completing every payment:
- Child support, spousal support, and alimony cannot be discharged.
- Criminal fines, penalties, and restitution orders remain enforceable.
- Any liability arising from fraud, embezzlement, or obtaining property through misrepresentation survives the proposal.
- Court-awarded damages for intentional bodily harm, sexual assault, or resulting wrongful death are excluded.
- Government student loans cannot be discharged if fewer than seven years have passed since you were last a full-time or part-time student. After seven years, they can be included.6Department of Justice Canada. Bankruptcy and Insolvency Act – Section 178
If a large portion of your debt sits in these categories, a proposal may not deliver the relief you expect. Your LIT should walk you through which of your specific debts qualify before you file.
Co-Signers Stay on the Hook
A consumer proposal protects you from creditors. It does not protect anyone who co-signed your debts. If a family member or friend guaranteed a loan or credit card that gets included in your proposal, creditors can pursue the co-signer for the full remaining balance. The Section 69.2 stay applies only to you. This catches people off guard and can strain personal relationships, so a direct conversation with any co-signers before filing is worth having.
Missing Three Payments Ends the Proposal
Under Section 66.31 of the BIA, the proposal is automatically deemed annulled if you fall behind by the equivalent of three monthly payments. No hearing, no second chance from the court. The annulment happens by operation of law.7Department of Justice Canada. Bankruptcy and Insolvency Act – Section 66.31
Once annulled, the stay evaporates and creditors regain their full collection rights. Their claims are revived for the original amounts, minus any dividends they received during the proposal. You also lose the right to file a new consumer proposal or receive protection under Sections 69 to 69.2 until every included claim is paid in full or extinguished.8Department of Justice Canada. Bankruptcy and Insolvency Act – Division II Consumer Proposals In practice, many people whose proposals are annulled end up filing for bankruptcy because nothing else is left. If you anticipate trouble making payments, contacting your LIT to amend the terms before you hit three missed payments is critical.
Who Qualifies
You must be insolvent, meaning either your debts exceed the value of your assets, or you cannot meet your obligations as they come due. Your total unsecured debt (excluding any mortgage on your principal residence) cannot exceed $250,000.3Office of the Superintendent of Bankruptcy. You Owe Money — Consumer Proposals Above that cap, you would need a Division I proposal, which follows a different and more complex process.
A proposed regulatory amendment published in the Canada Gazette in late 2025 would increase this threshold to $325,000 with annual inflation adjustments going forward.9Department of Justice Canada. Regulations Amending the Bankruptcy and Insolvency General Rules If you are close to the current ceiling, check with an LIT about whether the updated limit has taken effect.
Only a Licensed Insolvency Trustee can administer a consumer proposal. No other financial professional, debt consultant, or credit counselling agency can file one on your behalf.
Is It Worth It?
A consumer proposal tends to be worth it when most of your debt is unsecured credit card balances, lines of credit, or personal loans, when you have assets or income you want to protect from bankruptcy, and when you can commit to a fixed monthly payment for up to five years without strain. It tends not to be worth it when the bulk of what you owe falls under Section 178, when your income is too unstable to sustain payments through to completion, or when co-signers would be exposed to collection you cannot shield them from.
Before deciding, book a free consultation with a Licensed Insolvency Trustee. Bring a full list of your debts, including who holds each one, the balance, and whether anyone co-signed. Ask the trustee to model both a proposal and a bankruptcy against your specific numbers so you can see the trade-off in dollars rather than in theory.